We Are Investors!
Spring has officially arrived for the season and for stock investors, with most U.S. stock indexes nearing record highs. But one year ago this past Tuesday, U.S. stocks hit bottom in the pandemic panic. As of March 23, 2020, the S&P 500 had fallen 34% in five weeks, one of the fastest and steepest bear markets on record. Life for all of us and the economy came to a halt. The economy was shutting down. Investors weren’t worried; they were terrified.
During this time period, I received the same question constantly from people – “Are you selling your clients’ and your stock portfolios”? I always answered the same way – “We are investors”. Their question was understandable as the coronavirus 19 had severely impacted life around the globe and thus, negatively affected shares of all companies trading on the global stock market exchanges…..at least for a while.
What did I mean when I responded to the question by stating that “we are investors”?
We view investing as acquiring and holding suitable securities (stocks and bonds) at suitable prices. The alternative is to be a speculator who cares mainly about trying to anticipate (and thus profit) from market fluctuations. The ability to anticipate and profit from market movements is highly questionable.
As investors, we look forward to our re-balance schedule when we can have an opportunity to buy these companies shares after the prices have fallen sharply. In this approach, we try not to trade often, but did take advantage of the pandemic downturn to add more stock shares to the portfolios.
The late great investment analyst and Warren Buffett’s mentor, Benjamin Graham, has lessons to help navigate markets such as the pandemic market. He wrote the classic book The Intelligent Investor in 1949.
The investor who permits himself to be stampeded or unduly worried by unjustified market declines in its holdings is perversely transforming basic advantage to a basic disadvantage, warned Graham.
He went further,
The true investor scarcely ever is forced to sell their shares, and at all other times is free to disregard the current price quotation.
Words to live by.
For our clients who are currently living on their portfolio income, we have already ensured that they have both a cash reserve account as well as some short-term high-quality bonds to be able to provide income during times like those that occurred last year.
The primary reason many individuals fail as long-term investors is that they pay too much attention to what is happening currently in stock market and not enough attention of where it’s long-term outcome will be.
I often discuss how investors should expect a bear market (a decline of 20%+ in the stock market) to occur every five years, which may be easy to talk about when a severe downturn is not occurring. I’ve used the analogy that the difference of discussing a bear market and being in a bear market is like the difference between watching a horror movie and being in the horror movie.
I know that it takes patience and discipline to stay focused on the long-term goals to allow the portfolio to recover and give the benefits that it has historically. I hope our guidance and preparation aids in this pursuit.
Hope you have a great week!
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